A typical shipping transaction includes a buyer and a seller of goods. The seller needs to convey goods to the buyer, while the buyer needs to convey payment to the seller. Both the seller and buyer, though, may have a lack of trust problem akin to the “snatch and grab” of face-to-face contractual agreements. Snatch and grab refers to the circumstance where goods and payment are exchanged simultaneously due to a lack of trust between the parties. In particular the seller is skeptical that the buyer will proffer payment after receiving the goods, and the buyer is skeptical that the seller will proffer the goods after receiving payment. In international transactions, this situation is exacerbated by a slow and complicated transaction process. The goods must typically must be shipped long distances and through various import and export procedures. The payment must overcome similar hurdles, such as changes in currency and banking rules and regulations.
Financial instruments have been developed in an attempt to address such lack of trust problems in transactions that require the shipment of a package, or packages. Letters of credit are guaranteed by a bank if the seller meets the specific terms of the letter of credit. In the letter of credit process, the seller and purchaser agree to the terms of the transaction and the purchaser applies for the letter of credit from its bank. The purchaser's bank issues the letter of credit to the seller on the purchaser's behalf. The seller ships the goods and sends the letter of credit to its bank. The seller's bank audits the letter of credit for completeness and accuracy and then forwards the letter of credit to the purchaser's bank. The purchaser's bank compares the documents to the letter of credit to determine if the terms of the letter of credit have been met by the seller. If the documents match, the purchaser's bank pays the seller's bank and provides the purchaser with the verified letter of credit. The purchaser presents the verified letter of credit to the transportation company to take possession of the goods and arrange for final delivery. Under the letter of credit, the purchaser's bank guarantees payment to the seller if the seller meets the specific terms of the letter of credit. Therefore, much of the risk in the transaction is shifted to the purchaser who is contractually obligated to pay if the terms of the letter of credit are met. In addition, the purchaser must receive a credit approval prior to shipment, which delays the shipment. If the purchaser fails to obtain credit approval, the transaction may not be completed.
Another conventional method is a documentary collection process wherein the seller exports the goods to the purchaser, but instructs the seller's bank to collect the payment from the purchaser in return for transfer of title, shipping and other documentation. In the documentary collection process, the seller and purchaser agree to terms. The seller ships the goods and sends the documentary collection to the seller's bank. The seller's bank forwards the documents to the purchaser's bank. The purchaser's bank notifies the purchaser that payment must be made to receive the documents. The purchaser pays the purchaser's bank and the purchaser's bank provides the purchaser with the documents. The purchaser takes the documents to the transportation company to take possession of the goods and arranges for local delivery. The purchaser's bank pays the seller through the seller's bank. Unlike the letter of credit, the purchaser has no “up front” obligation to pay. However, the purchaser's lack of an obligation places all of the risk of the transaction on the seller. In addition, the documentary collection process is slow and complicated, due to the number of documents that must be manually transferred and audited.
PCT Publication WO 00/52555 to Stroh discloses a trade financing system that employs modified bills of exchange for international trade in goods and services. The buyer executes a bill of exchange, which is a payment draft, and submits the bill of exchange to the seller along with an order for a traded product. The bill of exchange is made payable to the seller, or the seller's agent. The seller obtains a verification of the creditworthiness of the draft, and upon receiving verification, the seller ships the traded product. The bill of exchange is “event-triggered” and becomes negotiable upon release of the traded product to the control of the buyer. Notice of the triggering event includes a receipt of verification of the shipment via the electronic tracking capabilities of the carrier. Once the triggering event is satisfied, the draft becomes negotiable, through conventional banking or other financial channels, for the full value of the traded product, less any fees and discounts charged for processing.
The seller is protected by not having to ship the goods until receipt of, and credit verification of, a payment draft in the form of a bill of exchange executed by the buyer. The bill of exchange protects the purchaser by being latent until a triggering event occurs, such as release of the traded product by the transportation company into the control of the buyer. However, execution of payment documents by the buyer, and the full demonstration of readiness to pay to the seller before the seller ships the goods, delays the shipping process. In addition, the draft is a full contractual agreement that must be signed by both parties before the transaction is complete, and must later be negotiated to obtain a cash payment. Such complexities slow the transaction process, and render use of the bill of exchange undesirable for less sophisticated buyers and sellers.
Therefore, it would be advantageous to have a system for coordinating an international transaction that protects both the seller of goods to be shipped, and the purchaser of the goods. It would be further advantageous to have a system for coordinating an international transaction that does not require the use of complex contractual agreements or documentary collection and auditing processes. It would also be advantageous to have a system for coordinating an international transaction that does not require an up-front credit verification that slows, or may even halt, the transaction.